Derek Thompson has an interesting piece in the Atlantic about our "productivity crisis." At the end of the piece, he highlights charts showing four areas where costs have risen much faster than inflation over the past few decades, which suggests that productivity growth has been low in these areas. I don't really disagree, but I feel like all of them deserve a little bit of pushback. Here they are:

  • Housing. True, the average house price has gone up. But so has the average house size. On that basis, the cost of a new house has gone down from $90 per square foot to $73 per square foot since 1970. That's not so bad.
  • Energy. Yes, it's up, but look at Thompson's chart for home energy costs. It doubles between 1973 and 1981, during the era of the OPEC oil embargoes. But since then it's been flat despite the fact that oil prices have continued to go up. This is largely due to more efficient use of energy in response to the energy crisis of the 70s: we get more GDP per BTU of energy today than we did 30 years ago, and household appliances are far more energy efficient. Again, not bad.
  • Education. The price of higher education has doubled over the past three decades. But that's driven not so much by higher actual costs, as by the fact that universities have simply learned that they can charge more. Obviously higher education is no productivity nirvana, but I think looking at raw costs is misleading.
  • Healthcare. Healthcare costs are skyrocketing, but this isn't so much because, say, a chest X-ray costs more in real terms today than it did in 1960. It's because a chest X-ray isn't good enough anymore. We want MRIs. We want PET scans. We want tiny cameras sent into our blood vessels. Sure, healthcare costs a lot more than it used to, but it's mainly because we demand a lot more treatments than we used to.

I don't want to protest too much here. Higher education is no more productive now than it was in the Middle Ages, probably, and a huge number of all those extra medical treatments we demand are useless or even counterproductive. At the same time, I'm not sure it's helpful to describe education and healthcare as industries that have low productivity growth. This suggests that they're laggards who simply refuse to respond to consumer demand for more efficiency. But the truth, I think, is that we as consumers have demanded that universities retain much the same teaching model as they've always had, and we've been willing to back up that demand with ever more dollars. We don't want our kids going to electronic classes and, apparently, we don't want our state governments to subsidize public universities the way they used to either. On the healthcare front, there's been tons of new technology, but we, as consumers, don't want that technology used to provide the same old service at a lower price. We want it used to provide additional services. We've spoken loud and clear on that score.

Anyway, read the whole thing. It's a worthwhile take on some of the problems we face, even if I think there are some caveats to keep in mind. After all, sluggish productivity is sluggish productivity no matter what the ultimate cause. Maybe it's our own fault, but it's still something to face up to.

So what about the nitty gritty of Obama's American Jobs Act? Is it any good? At a policy level, it rings in at about $450 billion, much bigger than most people were expecting. Here's how it breaks down:

  • $250 billion in tax breaks. Most of this is a payroll tax cut, but the plan also includes 100% expensing of business investment, tax credits for hiring unemployed workers, and a few other things.
  • $100 billion in infrastructure spending. About half of this is for new projects, and the other half goes to an infrastructure bank, a program to fix up vacant and foreclosed homes and businesses, and a program to fix schools.
  • $100 billion in other stuff, including extension of unemployment benefits, direct state assistance to hire cops and firefighters, a mortgage refinancing program, and a few other smaller items.

The White House fact sheet is here. So would it work? Macroeconomic Advisors, a private forecasting firm, estimates that it would boost GDP by 1.3% in 2012 and raise employment by 1.3 million. This is roughly equivalent to the CBO's low-end estimates of the original stimulus package in 2010, and the CBO has estimated that 1.3 million new workers translates to a decrease in unemployment of 0.7%.

Moody's is a little more optimistic: "The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

So that's probably the rough consensus. The plan is bigger than expected, the president's appeal was stronger than expected, the details of the plan have been generally well received, and if passed, it will raise GDP by 1-2 points and reduce unemployment by about one point or so.

So why did it take me so long to write a post about the actual policy impact of the AJA? Partly because I was waiting for the private forecasters to weigh in on its effect. But to put my cards fully on the table, there's also this: much more than usual — which is already a high bar — chattering about the policy impact of Obama's plan simply feels like a charade. I can't remember the last time that the actual merits of a policy proposal mattered so little. The details of Obama's plan will simply have no impact at all on whether it's passed. Among Republicans, reaction to Obama's proposal will be 100% guided by political considerations.

I don't think anyone really disputes this. And maybe I'll buck up and get all wonkish about this stuff after I recover this weekend. I usually do. But the truth remains that the policy impact of Obama's plan is purely a sideshow. Arguments on that level are all sound and fury, signifying nothing. Republicans just flatly don't care.

For what it's worth, here's an email I got last night from a friend who watches a lot of Fox News:

Don't know whether it means anything at all, but I was pretty shocked by the relatively mild reaction on my ferociously anti-Obama Fox Business shows and Greta Van Susteren's show on FNC. Aside from Greta, all the rest of them, Fox hosts, GOP pols, business owners and financial types were quite lacking in their usual shrieking hostility.

Since they usually screen these people's opinions really precisely before booking them, I have to conclude that some sort of word has gone out through Fox channels to go easy for some reason. Fox Business host David Asman tried to rile up the business and financial types, and failed, but it was pretty half-hearted and he didn't pursue it.

I'm not saying these people raved about the speech, but there was a marked lack of the routinely super-hostile reaction to anything Obama says or does. Even Michele Bachmann was not her normal fire-breathing self on Greta.

As I say, I don't know if it means anything, but it was quite striking to me. Something's afoot here that's a little different than what we've become so used to, it does seem.

I don't know if it means anything either. But the GOP leadership also reacted mildly, and I do think that this is basically the smart play for Republicans. Obama's goal is to persuade voters that he's the last reasonable man in Washington and that Republicans are a bunch of slavering ideologues. How do you defang that? Easy as 1-2-3. First, make sure your reaction to his plan is muted and sober. Second, agree to consider his entire plan and give it a fair hearing. Third, pass one or two pieces of it. This wouldn't have enough impact on the economy to really affect the election, but it would simultaneously make Republicans look sober and judicious (we passed a couple of items!) and also fiscally responsible (we tossed out all the goodies for special interest groups!).

We'll see. Keeping everyone reined in won't be easy. But this would unquestionably be the smartest possible way for Republicans to handle Obama's proposal.

Fortress America

Sunday is the 10th anniversary of 9/11. But while the attack on the World Trade Center is probably what provokes the sharpest memories in most people, that's not what stayed with me after the initial shock wore off. In the years since, my strongest reaction has always been less to the event itself than to how we decided to respond to it. I'm unnerved by the way we've become so security obsessed, so suspicious, so wary. Ordinary office buildings require IDs before they'll let you in. Taking pictures is a suspicious activity. Airplanes return to the gate because someone in seat 34A got scared of a guy in a turban a couple of rows in front of them. Small children are swabbed down for bomb residue.

There's a passage in Bob Schieffer's memoir of his reporting career, This Just In, that's stayed with me for a long time. Here it is:

These days, friends are never really sure I'm serious when I tell them that the Pentagon, like most of official Washington, was still open to the public in the 1970s.…No one was required to show identification to enter the building, nor were security passes required.…During the time that Jim Schlesinger was secretary of defense, I would sometimes drop by on a Saturday morning, and if his door was open, I would stick my head in and ask if anything was going on.

When I first read that, I remember being astonished. I'm enough younger than Schieffer that the idea of simply strolling into the Pentagon struck me as unthinkable. And yet, that was only a few decades ago. Shortly after the era Schieffer describes, by the time I was old enough to notice these things, I simply accepted the tighter security of the '80s and beyond without question. Now compare Schieffer's recollection with this passage from Wednesday's New York Times feature, "Fortress D.C.":

Some things are obvious: the Capitol Hill police armed with assault rifles, standing on the Capitol steps; concrete barricades blocking the once-grand entrances to other federal buildings; the surface-to-air missile battery protecting the White House; the National Archives security guards, almost as old as the Declaration of Independence enshrined inside, slowly waving a magnetic wand over all who enter. But most of the post-9/11 security measures have simply been embedded in the landscape and culture of the nation's capital.

From the reflecting pool at the foot of the Capitol to the reflecting pool in front of the Lincoln Memorial, government cameras take pictures of citizens, who smile for Big Brother and snap their own pictures of the government cameras. In the $561 million underground Capitol visitors center, completed in 2008, people clutching gallery passes from a senator's or representative's office are funneled through magnetometers, to witness a secure Congress in its sealed chambers.

These things, of course, I don't accept naturally because they've changed in my lifetime. But how about someone 30 years younger than me? To them, the assault rifles, the cameras, the magnetometers, the ban on bringing water bottles onto airplanes—all of the post-9/11 security paraphernalia—probably strike them as entirely natural. Not having this stuff around would seem as weird to them as not asking for ID at the Pentagon struck me.

This is, for me, the most enduring legacy of 9/11. I imagine the wars will all be over eventually, Al Qaeda will be conclusively dismembered, and even the drones might be put back in their hangars. But the protective apparatus we've put in place, both the less visible surveillance state and the highly visible security state, will be with us forever. And they'll get worse and worse: If the past decade is any judge, Americans seem willing to put up with an almost unlimited amount of this stuff as long as it's done in the name of protecting us from terrorism. The only thing that's provoked any serious reaction at all has been backscatter scanners in airports—and not because they represent any kind of real government overreach, but because people have a knee-jerk revulsion to the idea of having "nude" pictures of themselves taken.

That gets us upset. But hundreds of billions of dollars spent to relentlessly harden the routines of our daily lives? Our apparent attitude toward that, to paraphrase our former president, is "bring it on."

Harry and Barry

Obama's fiery tone tonight has prompted lots of chatter about "Give 'Em Hell Barry" and other assorted comparisons to Harry Truman and the Do-Nothing Congress of 1948. Taegan Goddard recommends Zachary Karabell's The Last Campaign: How Harry Truman Won the 1948 Election, saying, "I'll bet there are a few copies lying around the White House."

Maybe so. And far be it from me to bad mouth whistle-stop tours, coalition building, and full-throated Republican bashing. Still, if you want to understand how Truman managed to pull a rabbit out of his fedora in the election of 1948, the chart below tells the real story. I hope I haven't made the labeling too subtle.

UPDATE: Maybe I was a little too cute here. Sorry. Political scientists say that the most important factor in getting reelected is the state of the economy in the year before an election. In Truman's case, the economy was smoking hot: it was growing at a rate of 10% or more in all four quarters before November 1948. The campaign stuff mattered, but the economy was almost certainly the real deciding factor. (And contrary to popular myth, it was a pretty big victory: Truman beat Dewey in the popular vote by nearly five percentage points. That's the power of a strong economy.)

Obama's Big Speech

Well, that was sort of an interesting speech. Substantively and rhetorically, it was practically the paradigm of Obama's "most reasonable man in the room" strategy. Over and over, he offered up proposals that Republicans had supported in the past and that appealed to conservative sensibilities. More than half of it is tax cuts. He was so careful not to suggest anything with even a hint of Democratic parentage that it was almost painful to watch.

But the tone of the speech was much more aggressive than usual. Not aggressive enough, maybe, but then, a joint session of Congress isn't really the place for a stormy partisan stemwinder. By the usual standards of these things, he showed a lot of fire and he poked Republicans pretty hard.

"You should pass this right away." That's Obama's new tagline. And sure, Congress should pass it right away. But I have to confess that I still don't see the legislative road to passage here. The incentive for Republicans to obstruct everything that comes from the White House remains the same as it's ever been, and it remains as strong as it's ever been. Helping the economy helps Obama's reelection, and that's no good for Republicans. And making sure that everyone in America hates "Washington" is good for Republicans. As Marc Ambinder puts it:

Getting things done—anything—means that government is doing something. And that’s bad. So the worst thing that can happen is for anything associated with the president to pass cleanly, or even at all. If you’re a Republican member of Congress, there is no real incentive to compromise.

The GOP has created a political feedback loop that is calculated to destroy President Obama’s credibility as a change agent. They’ve figured out that when government is gridlocked and sclerotic, even silly and absurd, no one in Washington comes out smelling like a rose. No one seems reasonable, because nothing gets done. The reasonable man just looks weak.

Yep. That was true yesterday and it's true today, no matter how conciliatory John Boehner pretends to be for public consumption. So: nice speech. Good to see some fire in the belly. But I think the prognosis for action remains dim.

UPDATE: Several people have pointed out to me that I should be judging this speech not based on whether any of Obama's proposals will be enacted, but based on how it helps him politically. The general idea seems to be that Obama has been so incredibly reasonable that he'll be in a good position to make Republicans look bad when they refuse to pass any of his proposals.

Sure. Maybe. But I'm pretty skeptical even on that score. My guess is that the speech will quickly be forgotten, Congress will return to its usual squabbling, and Obama's reasonableness will shortly be buried beneath the usual howling from the Drudge/Fox/Limbaugh axis about how wildly radical his plan his. Reporters will press the Republican leadership for a while about why they aren't supporting proposals that are so basically conservative, but they'll get bored with this before long and give it up.

Just to hedge my bets, though, I wouldn't be surprised if Republicans do pass one or two of Obama's proposals. As long as they don't pass the whole thing, then (a) they can take credit for passing the good parts and cutting out the pork, (b) they'll seem reasonable in the process, and (c) it won't add up to a big enough stimulus to help the economy (and Obama's reelection) much anyway. That would actually be a pretty winning strategy for them.

Obama Speech Preview

This is a family magazine, so I have to watch my language. Besides, my mother reads this blog. But John Cole pretty much does a mind meld with me over at his place today. He's feeling — um, not so optimistic about Obama's speech tonight.

I know I should ignore this. Ignore, ignore, ignore. You can do it, Kevin!

But no. I'm hopeless. Here is Reason's Shikha Dalmia on why Social Security isn't a Ponzi scheme, it's worse than a Ponzi scheme:

A Ponzi scheme collects money from new investors and uses it to pay previous investors—minus a fee. But Social Security collects money from new investors, uses some of it to pay previous investors, and spends the surplus on programs for politically favored groups—minus the cost of supporting a massive bureaucracy. Over the years, trillions of dollars have been spent on these groups and bureaucrats.

Forget the business about the surplus. I happen to agree with Dalmia about that, but it doesn't matter much at this point. Social Security is only generating a small surplus these days, and within a few years it won't be generating a surplus at all. It's not worth worrying about anymore.

No, the real problem with Dalmia's description is the notion that Social Security collects money from new investors and uses it to pay off previous investors. It's easy enough to see why people believe this: it was, basically, the way the program was initially sold. And politicians ever since have found it convenient to continue this fiction. Seniors today are all convinced that the money they paid into the program during their working years was somehow saved up for them and now they're getting it back.

But that's always been a lie. Social Security is actually a much simpler program than that. I'm going to put the rest of this paragraph in bold so you can't possibly miss it. Here's how Social Security works: every month we take in taxes from working people and every month we turn around and distribute those taxes to retirees. That's it. That's how it works, and everyone who actually knows anything about the program knows that's how it works. Taxes come in, benefits go out. And the key to solvency is simple: making sure that those taxes and benefits are in balance.

This is, of course, the way every government program works. Taxes come in, payments to soldiers go out. Taxes come in, payments to NASA rocket scientists go out. Easy!

Now, morally speaking, we certainly have an obligation to keep Social Security running. After all, today's seniors did their bit back in the day and provided benefits to yesterday's seniors. But again, that's true of every government program. For example: we have an obligation to today's seniors to fund the Pentagon and keep them safe from al-Qaeda. After all, they did their bit and funded the Pentagon back when we needed to kick Hitler's butt and stop the commies from taking over the world. We also have an obligation to fund highways for our seniors. After all, they did their bit and paid for the original interstate highway system back in the 50s. Etc. etc. That's just how government works. If Social Security is a "monstrous lie," as Rick Perry says, then the entire federal government is a monstrous lie.1

Social Security is nothing special. It's just another tax-funded program. Taxes come in, benefits go out. As the chart on the right shows — and this is really the only thing you need to know about Social Security — the program costs about 4.5% of GDP today and will eventually top out at about 6% of GDP in 2030 and beyond. You can bring that into balance forever with tiny tweaks phased in over the next two decades. Not only is it not a Ponzi scheme, it's not even a major problem.

1Of course, Rick Perry might very well think that the entire federal government is a monstrous lie. But that's a different discussion.

Amazon Caves In

Amazon has spent years fighting ruthlessly to avoid having to collect sales taxes on merchandise it sells over the web. When California recently insisted that it do so, Amazon not only refused, but started collecting signatures for a ballot initiative that would nullify the new law. But now Amazon has backed off:

Under the deal, Amazon would delay collecting taxes until September 2012, Assemblyman Charles Calderon (D-Whittier) said. The new law had mandated that Internet retailers start collecting state taxes in July if they had offices, workers or other connections in California.

....If Congress acts by next summer to settle the contentious issue of how online retailers should be taxed, that decision would override Amazon's deal with California. "It's a safe harbor for up to a year," Calderon said of the agreement he helped strike. "If they can't get Congress to act by next July, then they will start to collect the tax in September 2012. If by chance they get Congress to act, then that would trump the state law."

So I wonder what happened? Was Amazon's signature gathering going poorly? Did their lawyers finally conclude that there was a serious chance of a court forcing them to comply with the law and assessing damages? Did public opinion finally get to them? Or do they think that maybe they can get Congress to pass a federal law by next September that addresses the issue nationwide?

It would actually be nice to have a federal law on this issue. But I sure don't see how we can get one. States would go ballistic if a federal law upheld the general exemption of internet retailers from collecting sales taxes, and there doesn't seem to be any path through the Senate for such a bill. On the other hand, the anti-tax jihadists would burst a vein if Congress passed a law that effectively increased taxes by putting e-tailers on a level playing field with brick-and-mortar stores, and the House is controlled by the anti-tax brigade. So there's deadlock.

So I dunno. Either Amazon has some inside-the-Beltway knowledge that I don't have, or else they just caved in because they decided their ballot initiative was going to fail. I'm not sure what else explains this.

Perry and Galileo

Talking about climate change last night, Rick Perry argued that the science was unsettled: "Just because you have a group of scientists that have stood up and said here is the fact — Galileo got outvoted for a spell." James Fallows explains why Perry is all wet:

Until this evening's debate, the only reason anyone would use the example of Galileo-vs-the-Vatican was to show that for reasons of dogma, close-mindedness, and "faith-based" limits on inquiry, the findings of real science were too often ignored or ruled out of consideration. And Perry applies that analogy to his argument that we shouldn't listen to today's climate scientists? There are a million good examples of scientific or other expert consensus that turned out to be wrong, which is the point Perry wanted to make.

Sure, Perry could have used any of those other examples. But how many people have heard of Alfred Wegener's critics?

If you hang around in crackpot chat rooms occasionally, you'll notice that a common trope is the one about the lonely scientist who was mocked for years but then turned out to be right. Why, just look at Einstein! It doesn't really matter if Einstein really was mocked or not. It just matters that there have indeed been scientists whose work wasn't initially appreciated by the mainstream establishment.

This is also, it turns out, a common trope in the climate denial community. Basically, Perry was saying that Ross McKitrick is a modern-day Galileo. Richard Lindzen is a modern-day Galileo. Lord Monckton is a modern-day Galileo. And Andrew Montford is their prophet. No matter that Perry almost certainly doesn't recognize a single one of these names. They exist, and his fans know them. So while Perry's analogy may seem misguided to you and me, my guess is that he got his point across just fine to the only audience he cares about: potential Republican primary voters. They think of themselves as lonely and oppressed fighters for the truth, just like Galileo. Who better for Perry to invoke?